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It's time to renew your portfolio at the beginning of the new year, 2000. You click on the Foolish Calculator to check the current stocks and... (gulp)... another year of Caterpillar! Just how many lives does this CAT have, anyway?
Is all hope lost? Is this another CAT-astrophe in the making? A CAT-aclysm? Is it time to jump ship?
To help answer these types of questions, last week we started to look at those Foolish Four companies that remained on the portfolio list a second consecutive year. Click here to refresh your memory. We found 56 stocks in our 39-year FF database that stayed on the list for another year. We found that, on average, repeater stocks in their first year on the list performed about as well as the S&P 500 and the Dow as a whole, but less than the average Foolish Four stock.
That's all well and good. But the real question of the day is, just how do these stocks perform the second year they're on the list?
As it turns out, these stocks did quite well that second year. Of 56 stocks that were "leftovers" from a previous year, 41 (73%) beat the S&P 500 return that year. On average, these repeaters outpaced the S&P 500 by 10.8 percentage points, and beat the average Dow stock by 11.0 percentage points.
Our leftover stocks outperformed the average Foolish Four stock that year as well, although by a smaller margin. Of the 56 leftovers, 30 (54%) surpassed the average return for the FF that year. Compared to the other Foolish Four stocks that were new to the list, our repeaters outgained them by an average of 4.3 percentage points.
As we saw last week, not all of our repeater stocks perform poorly the first year they make the FF list. For instance, many Fools renewed J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> this year. Unlike Caterpillar, J.P. Morgan had a respectable (although not spectacular) performance last year; its stock gained about 22%, about 2% higher than the S&P 500. The bank stayed on this year's list mainly because of a dividend hike, which raised its RP Ratio sufficiently to make the cut this year.
Do "repeat offenders" like J.P. Morgan, which fare relatively well the first year on the list, perform any differently than those stocks with a sub-par performance, like Caterpillar?
Searching the database, we find 28 repeater stocks that underperformed the S&P 500 the first year on the list, and 28 that outpaced the index. Thus, we can divide our leftover stocks into "Loser Repeaters" and "Winner Repeaters." The Loser Repeaters on average performed well, with 18 of 28 (64%) beating the S&P 500 that second year. These stocks beat the S&P by an average of 7.6 percentage points.
But those 28 Winner Repeaters really shined. Twenty-two of 28 (79%) beat the S&P 500. The average Winner Repeater outperformed the S&P 500 by 14.0 percentage points.
There's a subgroup of our Winner Repeater stocks that did even better. These are the stocks I'll call the "Super-Winner Repeaters." These stocks beat the S&P 500 by over 5% the first year they made the list. There were 18 Super-Winner Repeaters in all, and all but one (94%) beat the S&P 500 the second year on the list. These stocks outpaced the S&P 500 by an average of 17.6 percentage points!
Of course, the scientist in me needs to caution readers about the hazards of "subgroup analysis" used in our Loser and Winner Repeater data. That is, we shouldn't be too hasty to come to conclusions about subgroups of stocks chosen from the larger set of stocks originally analyzed. The road to statistical hell is paved with many such well-intentioned efforts, although these observations often give us ideas for future studies.
The results on our 56 Foolish Four repeaters are in agreement with those of the Beating the S&P (BSP), in which we found that 25 repeating BSP stocks also did quite well the second year on the list. Our 25 BSP repeaters outgained the S&P 500 by 8.6 percentage points (versus 10.8 points for our FF repeaters). As in our current analysis, we also noted a trend for the Winner Repeaters to outperform the Loser Repeaters, although the difference wasn't nearly as dramatic for BSP.
So, holders of Caterpillar, relax. Take a CAT-nap. If past history is any guide, the odds are decent that your investment should do well this year. In fact, as of yesterday, CAT is up by 6.1% this year, compared with the S&P 500's loss of 1.0%. (J.P. Morgan is down 2.6%.)
Margaret Thatcher, in a more Foolish moment, summed it up best: "I am extraordinarily patient, provided I get my own way in the end."
Beating the S&P
year-to-date returns (as of 01-18-00):
Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> -1.8%
PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> +2.8%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> +1.8%
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> -4.4%
Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %> -2.7%
Beating the S&P -0.8%
Standard & Poor's 500 Index -1.0%
Compound Annual Growth Rate from 1-2-87:
Beating the S&P +24.2%
S&P 500 +17.8%
$10,000 invested on 1-2-87 now equals:
Beating the S&P $166,500
S&P 500 $84,200